When Charles Sousa, Ontario’s minister of finance, presents his budget on Thursday, he will proudly announce that Ontario will balance its budget, the Liberals having taken 10 years to accomplish the feat. With an election a year away, the balanced budget will be the kindle for a major political debate about the future of Ontario’s fiscal policy now that the province faces the prospect of a “fiscal dividend.”

Ontario, at long last, will have options. If the economy keeps growing, provincial revenue could soon outstrip spending. That fiscal dividend can be used to cut taxes. Or pay down debt. Or, it can just be spent away in future budgets, and the province could find itself back pushed back into deficits and mounting debt. There will be no shortage of politicians and pressure groups calling for more spending.

Average Ontarians should make it loud and clear that they want debt reduction and tax relief. After enduring a decade-and-a-half of ceaseless tax hikes and rising debt, it’s about time that current — and future — taxpayers got a break.

They should keep in mind that even though the budget may be officially balanced, it does not mean end of borrowing. Ontario borrows hefty amounts to fund capital spending (as in, infrastructure). Capital expenditures aren’t counted when measuring the deficit, except in the form of depreciation costs of existing infrastructure, which are lower than the current capital spending. If capital spending were expensed rather than depreciated, Ontario wouldn’t be able to call the coming budget balanced.

Voters have to be sure the fiscal dividend is used for debt reduction and tax relief

Meanwhile, when the government sells off assets like shares in Hydro One, the proceeds are added to revenues, even though they should be only used to reduce debt. That’s another convenient trick to balancing an otherwise unbalanced budget.

For these two reasons Ontario can declare its budget balanced on Thursday even as it runs up debt liabilities. In the past four fiscal years, including the current year, the province’s official deficits amount to $26.2 billion, but its debt (net of financial assets) actually increased twice that much, by $52.8 billion.

Today, Ontario’s net debt burden is 39 per cent of GDP, compared to 27 per cent a decade ago. The net debt for each Ontario resident is close to $22,000. For a family of four, it’s nearly $90,000.

That offers a strong argument to start whittling away Ontario’s high debt load. Debt represents that accumulation of deferred taxes that future generations will have to pay. Ontario’s interest costs — now over $11 billion — are going to start eating more heavily into the provincial budget when interest rates rise, which they will eventually.

But it’s also important to use the fiscal dividend to relieve Ontarians from the punishing tax increases they’ve been hit with since 2004. As economists have estimated in recent years, taxes that create the most economic harm are income and transfer taxes, both of which have sharply increased in recent years.

The Liberals’ personal tax hikes began with their health levy July 1, 2004. And while they reduced the lowest marginal tax rate by a point, as part of a sales-tax reform, they introduced higher taxes on incomes over $150,000. Ontario’s current top rate (including the federal rate that was also raised last year) is now at 53 per cent, even higher than it was when Bob Rae’s NDP was voted out of office in 1995. Land-transfer taxes have gone up substantially (especially in Toronto, after the province handed more taxing powers to the city).

The Liberal government converted the retail sales tax into the HST in 2009, which was an important step in improving the economy’s competitiveness by relieving businesses from taxes on their costs. However, with no change in the eight-per-cent provincial rate, the HST ended up bringing in more tax revenue than the old PST did, since most services that had previously been exempt became taxable.

The 2009 budget wisely used those excess revenues to reduce personal and corporate income taxes. However, the government partly reneged on a promise to lower corporate taxes to 10 per cent, freezing them at 11.5 per cent instead. Instead of making the HST revenue neutral, the government ended up taking more taxes overall.

And then there are the soaring energy costs Ontarians have faced, the result of climate regulations and carbon taxes, which have made power, transportation and heating more expensive.

Overall, the province’s revenues have risen from 15 to 17 per cent of GDP since 2004. If taxes had been held at the same level they were 13 years ago, Ontarians would be paying roughly $12 billion less in taxes today.

This week’s balanced budget comes at a good time. With the U.S. promising to slash taxes and regulations (as well as renegotiating NAFTA), Ontario will be under pressure to maintain competitiveness by lowering taxes in response.

For this reason alone, we should congratulate Mr. Sousa for balancing the budget, and giving Ontarians some options in how to use their fiscal dividend. Given their current debt burden, tax burden and the headwinds about to arrive from south of the border, the choice they should make seems obvious.